The Reasonable Formation of Unreasonable Things

It is the most devastating trick investors play on themselves. Realizing that the rise and fall of bubbles does not negate the effectiveness of diversified long-term investing is one of the most powerful understandings an investor can have. And one of the hardest things an investor can do is maintain conviction on a long-term strategy when there’s a changing of the guard between one game and the next.

But a lot of the emotions — excitement, greed, fear, and frustration — stem from not knowing what bubbles are or why they’re happening which is what Minsky’s financial instability hypothesis explores.